Even though there is no clear definition made by the Malta government about the smart contracts, in the consultation document issued by the Office of Prime Minister about the virtual currencies and Blockchain Technology, It is understood that the term “technology arrangement” was chosen to leave space in the future to cover not only Blockchain and Distributed Ledger Technologies, but also other “arrangements” such as Artificial Intelligence and Internet of Things. In the consultation document there is a short but very significant section; it is section “5.3 Legal Personality of Technology Arrangements” which reads: ‘Whilst some Technology Arrangements are owned by a corporate structure, other Technology Arrangements may not have such an ownership structure. This could result in the possibility of transacting on and with the Technology Arrangement without a proper ‘legal person’ as counterparty. The proposed TAS Bill will try to provide a solution to such a scenario and it is being proposed that certain Technology Arrangements will be able to register with the Registrar for Legal Persons in Malta and acquire legal personality upon satisfaction of a number of requirements.’

By way of a definition, a VFA is any form of digital medium recordation that is used as a digital medium of exchange, unit of account, or store of value and that is not one of the following as defined below :

1.Electronic Money;

2.Financial Instrument;

3.Virtual Token.

The following are the legal definitions of the above: Electronic Money means electronically, including magnetically, stored monetary value as represented by a claim on the issuer which is issued on receipt of funds for the purpose of making payment transactions and which is accepted by a natural or legal person other than the financial institutions that issued the electronic money.

Financial Instrument includes the following:

•Transferable securities, including shares and bonds;

•Money market instruments such as treasury bills and certificates of deposit;

•Units in a collective investment scheme;

•Options, futures, swaps and any other derivative contracts relating to securities, currencies interest rates, yields, commodities or those that are traded on a regulated market etc.;

•Derivative instruments for transfer of credit risk;

•Rights under a contract for difference;

•Instruments which confer property rights;

•Foreign exchange held for investment purposes;

•Emission allowances under EU Emissions Trading Scheme.

Virtual Tokens have been defined as a form of digital medium recordation whose utility, value or application is restricted solely to the acquisition of goods or services, either solely within the Distributed Ledger Technology (DLT) platform on which it was issued or within a limited network of DLT platforms.It is important to note that a virtual token which may be converted into another DLT asset type shall be treated as the DLT asset type into which it is or may be converted.The laws have introduced a compulsory Financial Instrument Test in order to classify the asset and determine whether it is a VFA, Financial Instrument, Electronic Money or Virtual Token.

FINANCIAL INSTRUMENT TEST

An Issuer of a VFA shall, prior to offering such asset to the public in or from within Malta, or applying for its admission on a DLT exchange, undertake the Financial Instrument Test.The test is crucial to determine whether the DLT asset qualifies to be regulated under this new regime of laws, or whether the other Financial Services Laws will apply.

The Test has to be: 1.Signed by its Board of Administration, 2.Endorsed by its VFA Agent.

The process is a two-fold test, being: 1.Does the VFA qualify as a Virtual Token as defined under the new laws? If it does, having in mind its restricted definition as per the new laws herein specified, then it is exempted under the new VFA Law and the licensing requirements do not apply. 2.If it is not qualified as a Virtual Token, then one has to determine whether this qualifies as a Financial Instrument under MiFID considering all the categories of Financial Instatements as identified above. If the answer is negative, then the asset is caught under the VFA Law and its licensing procedure must be followed.

Sources

• Legal Personality for DAOs and Smart Contracts
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